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It is very important to get your personal finances in order, whether its to save more for a deposit for a first home, an emergency fund or paying down credit card and mortgage debt, to making your money work for you by creating passive and multiple sources of income. This article highlights 12 ways in which you can save, earn and invest your way to financial freedom. One of the best tools I recommend for saving and investing your hard earned cash is M1 Finance. Not only is M1 Finance one of the most simple and effective investing apps around, but it also gives you real value for money, not to mention giving you a variety of index funds to choose from in order to build your ideal portfolio, all at a $0 commission cost. You can check out M1 Finance here.
General savings tips and debt management strategies
1) Keep your finances under control.
You may earn a good salary but this doesn’t mean anything if it continually leaks away via taxation, paying too much interest, not being invested properly and spending more than you earn. Therefore, to get your finances in order, you have to stop the leaks. Are you paying too much interest and spending too much on your credit card without paying it of in time fro example? Then cut them up and pay them off if you want to stop the leaks. The same with your mortgage. Make sure that you’re not paying more on your interest than necessary. If your fixed rate has come to an end, shop around and check out the best deals that are now available.
As for expenses, keep a record of everything-payments, receipts, invoices to see where the leakages are. Are you still paying for that cable subscription that you stopped using 3 years ago for example? The truly financial savvy amongst us are eagle eyed and never miss a thing when it comes to financial control.
2) Save as early as possible
In fact, the earlier the better due to the power of compounded interest (you may wish to read this post to find out more about the huge benefits of compounding). Try and aim for a figure as a percentage of your salary but as a general rule, try to aim for at least 105 of your gross salary and set up a standing order for that amount to go straight into your savings account on payday so that you don’t have to think about this in future.
3) Spend less than you earn
I am amazed at how so many people break this very simple but golden rule when it comes to personal finances. You have to live within your means and control your spending habits. Just because Mr and Mrs So and So have spent over $20,000 on renovating their house or $5000 on a gold plated toilet seat doesn’t mean you have to. And what if you want that dream $2000 vacation or new iPhone X5591SH? Then make sure that you can afford it before you splash the cash. Simple as that!
4) Set up an emergency fund
Specifically for rainy days and contingencies such as:
-Sudden legal problems
-Sudden liquidation of your company
And how much should you save? As a general rule of thumb and depending on your expenses, about 3-6 months’ worth of expenses or if you are really conservative, about 3-6 months’ worth of your gross salary. And where should you keep it? Most people keep it in a high interest, instant access savings account. For more information on how to save up for an emergency fund, you may wish to check out this post here….
5) Pay off your debts and loans as a priority.
By debts and loans, I mean credit cards and personal loans specifically. Unless of course you pay off your credit card every month in this case, give yourself a pat on the back, well done you! Youre not wasting any money paying interest and you’re in a strong position going forward.
However, if you do have a credit card and a personal loan, then you are certainly not alone. Many Americans are now in more debt than ever as we live in a more ‘buy now pay later’ society. But make no means about it-you need to pay your loans and debts as soon as possible. After all, there is no point in putting some money into a savings account earning 5% when you are paying 20% interest on the money you owe your credit card company. The simple truth is that those who borrow almost always pay a higher interest rate than the rate that you receive whilst saving
6) Don’t spend it before you get it!
That means no loans, overdrafts, credit cards (unless you plan to pay it off immeditaly) and thus, prevent any debts that require future income to pay them off-with interest. Just no….Question whether you realy need a particular thing today or whether it could wait. Question whether you need a particular item at all. Moreover, is it worth paying the extra interest to purchse it today against tomorrow’s income? In addition, questin the risk of whether you circumstances may change in the future and you may need that income for something more important such as for an emergency fund for example?
How to earn more money:
7) Money doesn’t grow on trees: you need to work your ass off to get wealthy.
This cannot be emphasised enough. The truly wealthy and successful amongst us worked their asses off to get where they were. They start early, finish late, and they didn’t watch television in the evenings. Most importantly, they knew that money doesn’t grow on trees. Therefore, if you are serious about getting rich, then you must do the same.
8) Understand the fact that working for others will not make you truly wealthy
OK, so full time employment at least brings you more stability but you must understand that you cannot get truly wealthy living paycheck to paycheck. In this day and age, there are so many opportunities to make more money, whether it’s to run a side hustle alongside your full time job to taking the plunge and becoming a full time entrepreneur. However, although working for yourself has higher earning potential, it does go without its risks. Nearly 90 percent of business start ups fail within the first year so if you do decide to take this route, make sure you do the right research and put in enough time and dedication into your start up.
9) Develop multiple sources of income
In this day and age, you cannot just rely on just your full time job as your sole source of income. Just ask any wealthy individual-chances are they have several income producing activities and there are several ways you can do this, one of which is to create passive income sources whereby you turn surplus cash into assets that generate income even when you are there-renting a property or annual dividends from shares for example. Another way you could create new income streams is to utilize your skills and expertise in more than one setting for example, freelancing work on the side in addition to your day job or perhaps working in a different area where you have the specific skill set in a hobby or pastime as another example. For more information on developing multiple income streams, you may also wish to check out this post on ways to earn extra income…
General investing tips:
Are you looking to invest using an easy to use, commission free investing platform? Then you may wish to consider M1 Finance. Not only is M1 Finance one of the most simple and effective investing apps around, but it also gives you real value for money, not to mention giving you a variety of index funds to choose from in order to build your ideal portfolio, all at a $0 commission cost. You can check out M1 Finance here.
11) Understand your risk tolerance
When it comes to investing, are you a risk lover or more risk averse? In general, a young investor will have a longer time horizon and possibly a higher tolerance of risk, so therefore he may wish to allocate more of his portfolio into stocks as opposed to someone approaching retirement who may wish to allocate more into bonds to protect his pension pot for example.
12) Understand your investments
Warren Buffet once famously quoted that ‘you should never invest in anything that you don’t understand’. If you don’t have the time to research equity investments, then your best bet would be to invest in index funds that track a particular market such as the S&P 500 for example, which composes of an index of 500 companies in the US and is considered a bellweather of the US economy. However, if you have the dedicated time, you can also consider individual stock investing. In this case, you need to make a judgement on the management, earnings and future prospects on the companies that you choose to invest in but take into account the fact that this method takes extensive time and effort.
13) Invest for the long term
Gaining wealth through investing is a slow process-there is no get rich quick scheme when it comes to investing. Of course there will be times when the market dips but if you utilise a long term horizon, you will reap greater rewards in the process. So don’t sweat the small stuff when it comes to your investments, take a long term view and don’t pay too much attention to the day to day fluctuations of the stock market.
14) Utilize dollar cost averaging
Fundamental to the strategy of dollar cost averaging (DCA) is a commitment to investing a fixed amount in each time period. Depending on an investor’s investment objectives and risk profile, the periodic contributions can be invested in a mixed portfolio of mutual funds, exchange-traded funds (ETFs) or even individual stocks. In this case, the fixed amount (say $1000 every month for example) buys shares at the then-current price. As share prices decline, the fixed amount buys a higher number of shares; when prices increase, the fixed amount buys fewer shares. The real benefit of dollar-cost averaging is that investors don’t need to worry about investing at the top of the market or trying to determine when to get in or out of the market-as long as the market is trending higher, you will gain a return.
15) Diversify your investments
Don’t put all your eggs in one basket if you decide to invest in individual stocks! Yes, the potential returns could be very high but so are the downside risks. As a general rule of thumb, I like to allocate a maximum of 10% in any individual stock and a maximum of 20% in a particular sector in my investment portfolio. Moreover, make sure that you are diversified in different asset classes too such as bonds, real estate and cash for example as this lessens the risk of losing it all at any one time.
What personal finance goals do you like to utilise as a way to save, earn or invest more money?
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